The Relationship between Income and Material Hardship

This paper examines the relationship between income and the extent of material hardship and explores other factors that might affect hardship. Using panel data from the Women’s Employment Study (WES), we examine the incidence of material hardship from 1997 to 2003 among current and former welfare recipients. We then consider the extent to which alternative income measures are associated with these hardships. We show that hardship decreases monotonically across quintiles of the disposable income distribution. This decrease is even more noticeable when we measure income as the average across the 6-year study period—those in the bottom quintile are 25 percent more likely to experience hardship than those in the second quintile. This relationship arises, in large part, because income is also correlated with other factors—both observable and unobservable—that affect material hardship. Consistent with ethnographic research suggesting that informal resources play an important role in helping disadvantaged families make ends meet, we find that the relationship between income and hardship is weak in individual fixed effects models. Our results indicate that other observable factors, such as measures of mental health or longrun income, might help identify those families who are at the greatest risk of experiencing material hardship.